Ethics & International Business

Upon entering the business world we are faced with numerous decisions, and these decisions only get harder once you are based in another country that does not uphold the same political, economic, and legal systems and that has variances in economic development relative to your home country. While we generally talk about ethics in terms of what is right and what is wrong; often in a business context right and wrong is not cut in stone. Furthermore when conducting business abroad it is important to also understand the host country’s ethical guidelines as well as your own; and find a good balance between the two. First we will discuss what types of ethical issues arise in international business and why these issues can lead to an ethical dilemma. Next we discuss why some managers abroad decide to engage in unethical behavior. Lastly, we will discuss what steps a multinational can take to ensure everyone is abiding by the company’s code of ethics. While on the surface these concepts seem dull, in actuality they are not; in fact, they have to do with the way you are treated as an employee and in turn how you treat those who employ you and vice versa. On a broader level, ethics have a profound impact on developing nations, where employees are often unskilled and uneducated and human rights are often denied; even in the workplace! On an even broader level, we can observe the global tragedy of the commons, where; as transportation and communication technology have dramatically increased over the past several decades, so have the available regions in which a firm can open business, further polluting the environment’s finite lands and oceans. To put it simply, a strong ethical code acts as a guide for the company’s managers and employees; and when put into practice, people will take into consideration not only economic implications, but ethical implications as well; so that when they are faced with a catch 22, they will take ethical philosophies and principles into consideration.

There are five main issues that commonly arise when conducting business across borders, they include but are not limited to; employment practices, human rights, environmental pollution, corruption and the extent to which a company has a moral obligation to the region they are operating within.

The first issue involves the treatment of employees, especially low level-unskilled employees of developing nation states. While developed nations, such as the United States, have strict regulations about labor rights and laws, including minimum wage standards and facility condition standards; more often than not when outsourcing to a developing nation through subcontractors these standards are non-existent. There have been more than several instances when the news media covered the poor working conditions across borders. Most recently, there has been an impending investigation against Foxconn’s (Apple’s largest manufacturer, they also supply Dell and Hewlett and Packard)Taiwanese factory, accusing them of using student “interns” as young as fourteen years old to work in their factories with substandard conditions. While they are not breaking Chinese law per se, Foxconn’s is going against the ethical values that it promises its partners when supplying them. Since then Foxconn has sent the workers back to school, but the question still remains, who is responsible?

This case segway’s us to human rights; if these types of acts go on in a nation, then, should companies really be investing in a country that violates basic human rights? While it is circumstantial, some argue that, investments by a multinational enterprise can be driving force for economic, social and political progress because when people are employed, living standards rise and when living standards rise, citizens become more involved and push their government to create a more democratic and free environment. In other cases, divestment is a better choice, because no matter what you do you will be contributing to the violation of citizen’s rights. Amnesty International was an organization set up to combat the violation of basic human rights, and it can be a good source of information for managers and employers in terms of ethical practices across borders. They cover an array of issues, but what international businesses should be concerned with are business and human rights and their section on corruption. In the business and human rights section, they ask a simple question, “Profits at what price?” The atrocities that led to the displacement of 80,000 Ogoni people (who were protesting against the environmental impact that drilling oil would have on their region) and the killings of 2,000 people are only now, coming to a head. The ATS law was enacted in the late 1700’s in the United States, which allowed the courts to hear claims brought by non-citizens for violations of international law. On Monday they will decide whether or not the ATS law applies to corporations, or international business at all for that matter. Only time will tell but it is a big step in holding firm’s accountable for their actions. While Dutch Shell was asking for “protection,” they knew the police in the area were corrupt but decided to turn a blind eye to it. This leads us to our next two topics, environmental pollution and corruption across borders.

In terms of environmental responsibilities, today it goes much further in lieu of scientific evidence that global warming is not only prevalent, but largely man-made. There is no doubt that developed nations have strict laws capping the amount of emissions allowed into the air and pollutants entering the oceans; and these regulations are often costly. So then, is it the right to move operations to a region where there are limited laws in place, that allow a multinational to exploit the environment more so than if they were in their home country? The world’s resources are precious and finite, and if there is no world, then there is no business. While short term profits may be large, the long term cost is the global tragedy of the commons, or the contribution by corporations to the degradation of our environment by moving production to locations where they are free to pump pollutants into the air or dump them into the oceans and rivers further destroying valuable finite global commons. This also relates to human rights, because often times these pollutants are toxic and can harm the people of a region. For example, in the case of Royal Dutch Shell, they neglected to take into account the human impact of their drilling. Although they may have created jobs, it came at an expense to an individual’s health. While it may not be necessary to follow the same exact guidelines as your home country, it may be in your best interest because, in short, the world’s lands and resources are finite, and it is our job to protect them as much as possible.

Another issue firm’s face is corruption, not only by police forces, but by government officials. Bribes are a difficult thing for many companies to overcome, especially when there is a threat of retaliation from governments in terms of shutting a business down and even more so in countries where the mafia or drug-lords are firmly in control of the region. This leads firms to an ethical dilemma, in regions where drug-lords are prevalent, what’s worse, not paying them off (can result in killings or kidnappings of employees and managers) or should the firm shut down the business and move elsewhere (taking away the income of citizens in the region)? In places like Columbia and Russia this is a reality. In my opinion, I don’t believe operating a business in these areas is safe for Westerners in any capacity; there are just too many risks involved. I would rather be in a country where human rights are lacking, and try to fix it within my company; than in a country where the lives of my employees are constantly in danger.

Lastly, what moral obligations do firms have when operating abroad? Are they responsible for government actions against citizens, and are they also responsible for the subcontractors they employ? These are tough questions to answer, and on Monday we will see if any progress will be made in terms of holding firms accountable legally. But for now, it mostly depends on a company’s ethical codes and the extent to which they follow and abide by these codes. This aside, why would a manager contribute to the negativities above; in other words, what would cause a manager to act unethical?

There is an array of reasons a manager might act unethically. The first has to do with where he or she was raised, and the emphasis their families and institutions have put on ethical behavior. Generally when a person has strong personal ethics it resonates into every other part of their life, including business. So, living in a society he or she grows up in and the people in their life have a huge impact on the way the individual will act in a business setting. Another reason is the manager may not know they are acting unethically. How can a manager possibly not know they are acting unethically? At first glance asked myself the same question, but really, it isn’t hard. In a business setting we often look at calculations to determine what the costs of things are, and often we forget that just because something looks like a good investment, it’s easy to overlook the ethical implications of a good deal. So it is important when doing cost-analysis assessments ethics play a role in this calculation. Also, an organization’s culture can guide people to act a certain way. Just as societies have cultures, organizations do too. An organization culture refers to the values and norms that are shared among employees of an organization. What shapes the company’s cultures not only the ethical codes of the company, but to what extent they are practiced and followed by the leaders of a company. For example, a company could set unrealistic expectations for an expatriate manager, causing him to cut corners in terms of ethics. He may have employees work 12 hour shifts with no break, and because there is no law that will sanction the company, he will figure its okay as long as he is meeting quotas. Therefore it is important for parent companies to set realistic goals, and lay down a zero-tolerance policy when it comes to exploitation of workers.

There are several philosophies that make for good ethical behavior for international firms. The most traditional are Utilitarian and Kantian ethics, which date back to the mid 1700’s. Some of the most ingenious philosophers including John Stuart Mill, David Hume, and Immanuel Kantian among others set the stage for business ethics. The Utilitarian approach to ethics holds that the moral worth of actions or practices should be determined by the consequences. Meaning, that, a corporation should weigh the costs and benefits before making a decisions. While there are certain drawbacks, such as how do you numerically weigh the cost of environmental impact, when it hasn’t happened yet; it still encourages companies to look at all aspects of a business transactions. Kantian ethics, too, have helped shape the philosophies guiding business today, stating that, people should be treated as ends, not means to the ends of others. This, in other words, means respecting your employees as human beings with dignity, not production methods.

Rights theories, were developed from both Utilitarian and Kantian ethics, and stated that humans have certain basic rights that transcend national borders. It holds the minimal amount of morally acceptable behavior. The Rights Theories led the UN to adopt the Universal Declaration of Human rights, which almost every nation state has signed and lays down the laws in terms of basic principles that need to be adopted when conducting business in a culture other than your own. They give rights and obligations to the people working for corporations, as well as corporations themselves.

Another theory that will help businesses act ethically is the justice theory, which requires the distribution of economic goods and services to be fair and equitable. Philosopher, John Rawls, developed a method to look at a business transaction impartially through a veil of ignorance. The veil of ignorance creates a situation where everyone is ignorant of their own characteristics. The once, your own bias’ are taken away, it asks what type of system a manager should design for the company. It draws on two basic principles, one, that each person in a society should be permitted the maximum amount of basic liberty compatible with a similar liberty for others. For example, if a society promotes freedom of speech, everyone should be able to say what they want. They second principle is once equal basic liberties are met, inequality in basic social goods like income distribution and wealth, is okay so long as it benefits the least advantage person. This has been called the difference principle. It promotes competition so long as it benefits everyone to some degree.

So this leads to the last section of our discussion, how then, can firms promote ethical decisions within the organization. While we touched a on a few concepts already, we will reiterate them. When hiring an employee it is important for firms to take into account that employees reputation from other firms they have worked for. This is why many human resource managers ask for letters of recommendation. Another approach that is becoming increasingly popular is giving potential employees psychological tests to tap into their personal ethical system. It is not enough though, to just hire employees with good ethical intentions, firms must develop a code of ethics, which is a formal statement of the ethical priorities the business adheres to. And still, this is not enough, anyone can just write words on a paper, but actions speak much louder than words. Managers must set the example for employees to act in an ethical way. What’s the point in drawing a code of ethics if it isn’t put into practice? When faced with a decision that has ethical implications, managers must include this in their assessment of whether or not to do business in a region. They must consider all the firm’s stakeholders. Many companies have hired ethics officers to ensure everyone is trained and ethically aware of their surroundings, and act in a moral and responsible way. They evaluate employee complaints to gage the ethical compliance relative to the ethical codes of those in the company. Lastly, it’s important for a manger to create environment where workers aren’t afraid to tell someone if they are being treated unfairly by a superior. In this country, it is okay to speak against a manager, and many employees when treated improperly will go to the press to expose such actions. In developing nations, though, consequences can be grave. Consider all of the employees who didn’t support Chavez during his election. Many stated in the papers, if he was reelected he would take away their jobs, and he did. Therefore when across borders this can be very complicated, and to an extent dangerous. In many Asian nations, a life can be threatened by going to the press about unfair treatment; and it can get to the point where the government even censors the complaint.

Ethics in terms of business is a tricky and touchy subject, especially across borders; but it is important to not turn a blind eye; because every decision a company makes generally holds some ethical consequences. And while there may be not right answer to what is right, at least considering it can save humans from being exploited, encourage progress in developing nations and even save the environment from degradation. It can have a profound impact, both negative and positive. The job of a company and its managers it to ensure that they are making the most positive ethical decisions as possible when faced with ethical dilemmas.

Comments

Hi--as aways a mindful and smart article. I absolutely enjoyed it and it gaveme a lot of food for thought. I have not worked in many places outside the U.S. but those I have worked in inlcudes Mexico...Australia and Thailand. However, I worked for home-based compnaies so eithics was't a real issue for me even in those far away places. However, I see a lot of Gordon Gekkoisms right here on our home front and certainly our so-called Industrial Age was certainly packed with heartless and mindless greed. In view of all this, I think what we need to to create what I would term Compassionate Capitalism--and yes, I know, the odds of that happening are zero to none. Anyway, once again a great piece of writing and you get 5 BIG stars from me.